Green Financing Sighted in Australia’s Ammonia Industry

Last month the Commonwealth Bank of Australia (CBA) announced that it has “signed an AUD $400 million [USD $256 million] three-year bilateral sustainability-linked loan” with Australian conglomerate Wesfarmers. This represents at least the second occasion on which an ammonia producer has linked its cost of capital to progress in meeting sustainability goals. In July 2019, Yara announced that it had signed a USD $1.1 billion revolving credit facility with a group of 13 lenders whose margin “will be adjusted based on Yara’s progress to meet its carbon intensity target by 2025.” Wesfarmers’ CSBP division produces ammonia, ammonium nitrate, and derivative fertilizers. Its joint venture Queensland Nitrates produces ammonia, ammonium nitrate, and nitric acid.

The Wesfarmers’ loan appears to have an incentive mechanism that is broadly similar to Yara’s. “By meeting ambitious social and environmental targets linked to Indigenous employment and reduced carbon emissions intensity,” the CBA announcement says, “Wesfarmers will receive a margin discount on their loan. Conversely, material underperformance would trigger an increase in pricing.”

In September 2019, the Australian Renewable Energy Agency (ARENA) announced an award of AUD $1.9 million to Queensland Nitrates “to assess the feasibility of the construction and operation of a renewable ammonia plant at its existing facility near Moura in Central Queensland.” Queensland Nitrates is a joint venture owned in equal parts by Wesfarmers and Dyno Nobel. The contemplated project would “produce 20,000 tonnes per year of ammonia,” according to ARENA. This amount would increase the plant’s output by about 20% and fill “an ammonia production gap that QNP currently procures from third party suppliers.”

Wesfarmers is one of Australia’s largest companies, with 2019 revenues of AUD $27.9 billion [USD $17.9 billion] and a workforce of 105,000 employees. A majority of the company’s revenues come from its retail division which operates stores in Australia and New Zealand under such brand names as Kmart, Target, and Officeworks. The company’s Chemicals, Energy & Fertilisers division had 2019 revenues of AUD $2.1 billion [USD $1.3 billion], of which AUD $610 million [USD $390 million] came from the Fertilisers unit.

There is no indication that capital sourced by Wesfarmers under the CBA credit facility would be applied to the potential QNP project. It seems clear, though, that a reduction in QNP’s carbon intensity will count toward Wesfarmers’ emissions reduction commitment. The company has a well-articulated sustainability framework which includes, according to its 2019 Annual Report, targeted CO2 emissions reductions for each division for fiscal 2025 relative to a 2018 baseline. The Chemicals, Energy & Fertilisers division accounts for more than half of the company’s emissions. Its 2025 target is to drive “emissions per unit of production … below the mean of comparable peers.”

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